House panel kicks off tax reform debate

Tax reform will likely be a big issue during the 2013 legislative session with Texas lawmakers trying to make the state’s tax policy fairer and also to determine the actual size of the structural revenue deficit.

“I believe that next session there will be substantial tax reform and a broad review of tax policy,” House Ways and Means Chairman Harvey Hilderbran, R-Kerrville, said Wednesday after his committee kicked off the process by discussing tax abatements and exemptions.

Chairman Harvey Hilderbran

The new business tax that lawmakers approved in 2006 during a school reform is not performing as advertised. And, it’s not uniform.

Auto repair shops at car dealerships pay a lower business tax than independent auto repair shops, Hilderbran said. What about on-line retailers who don’t have to collect sales taxes? That costs the state about $1 billion in lost revenue, he said.

House Speaker Joe Straus, R-San Antonio, has instructed Hilderbran’s tax-writing committee to determine whether the state’s business tax should be repealed and replaced with a different business tax. He also wants the committee to assess the impact of the state’s tax structure on the business climate. In other words, how do the sales and franchise taxes and tax exemptions impact capital investment, economic growth and job creation in Texas?

“Everything is before us next session,” Hilderbran said.

He would like to see reform that is revenue neutral – meaning tax rates that don’t increase revenue.

“If we have a more competitive tax code and it results in more economic investment and more economic growth that results in more revenue, I don’t view that as a tax increase,” Hilderbran said.

Business leaders urged the committee to keep the current property tax abatement school districts can offer companies making investments in manufacturing, research and development, nuclear energy or electricity generation with low emission technologies.

Texas’ wind energy business has prospered in large part because of the school property tax abatements, which run for eight years.

The state’s high property taxes continue to be the biggest impediment for business development in Texas, Paul Sadler, executive director of The Wind Coalition, told the Ways and Means Committee. Sadler said his opposition to school property tax abatements while a legislative leader in the 1990s was one of his biggest mistakes.

An estimated $4 billion has been invested in Texas wind plants since 1995, and they will pay about $6.4 billion in property taxes over the next 20 years, Sadler said.

Texas currently is capable of generating 10,135 megawatts of wind power, which, by far, exceeds that of any other state.

“Everyone wants the industry,” Sadler said, adding, “Wind energy is the only energy that doesn’t use water.”

The school tax abatement – officially called “Chapter 313” of the state tax code is “the most important economic development tool” that Texas has in keeping and attacking industry, said Luke Bellsnyder, head of the Texas Association of Manufacturers.

Even talking about diluting or retreating from the school property tax abatement has a chilling effect on the state’s effort to attract industry, Bellsnyder said.

“It’s very tight out there,” he said, noting that neighboring Louisiana is trying to take jobs from Texas.

But any reform requires state leaders to get “a better grasp of what has been accomplished” from the school property tax abatement that lawmakers approved in 2001, said Dick Lavine, a senior fiscal policy analyst at the Center for Public Policy Priorities, a group that stands up for low- and moderate-income Texans.

Do the tax abatements actually result in job gains?

“We don’t know how many of these projects would have come here anyway,” Lavine told the committee.